Observer States

The measures taken by local and regional authorities will aid the emergence from the financial crisis

17.03.2010 - The Congress today held a debate on the financial crisis and its effects at local and regional level. "The current crisis has triggered a substantial fall in local and regional tax revenues and a significant increase in budget deficits. Greece offers a particularly telling example. At the same time, local and regional authorities have to contend with an increase in public spending" Svetlana Orlova (Russian Federation) told Congress members.

She described the steps taken by the Russian government to mitigate the effects of the crisis, including measures to buttress the economy such as enhanced resources for the banking sector. Three billion roubles have also been allocated to boost employment, enabling over 100,000 people to return to work.

Another key factor in overcoming the crisis is credit flows to businesses. "In the car industry in particular the measures have made it possible to ease the tensions on this sensitive sector. Similarly, development schemes for small businesses and agriculture are essential, since they constitute a strategic source of jobs" she stated.

Sustainable development projects offer scope for an economic recovery. "Russia recently adopted a law on energy efficiency, based on the Kyoto Protocol. It will allow savings to be made and an increase in public expenditure" said Ms Orlova, who added that other environmental programmes - for "clean water" and "clean air" - are being implemented because "in a time of crisis ecology must remain as important an issue as before".

Olivier Touchet, Regional Director of Dexia France, cited worrying figures regarding the recession's implications for local and regional government. "European local and regional authorities derive 40% of their revenues from local taxation, but the crisis has affected both expenditure and revenues" he explained. "Public expenditure performance has considerably declined and, in 2010 and even 2011, a further decline should be expected."

According to Mr Touchet, this has a direct impact on households since "Welfare spending accounts for 20% of local and regional authorities' total expenditure; the increased welfare demand and the decrease in revenues is making a budgetary equilibrium difficult." He pointed out that local and regional government account for 60% of public investment in Europe, which makes it all the more necessary to reinforce schemes to stimulate investment by local and regional authorities, who are greatly contributing to the emergence from the crisis.

This analysis of the economic situation in Europe raises many questions about the potential future role of local and regional authorities. "Is there a need for more decentralisation? Must local and regional authorities' budgets become less flexible, but more sustainable?" For Mr Touchet these are some of the questions to be addressed by local and regional authorities and central government in future.